An IRS audit is the business equivalent of a root canal. No one wants to open that letter from the IRS because in most cases the unpopular communication has only one message to report: you owe them money.
While the odds are reasonably low that you will be singled out–it is unrealistic to expect the IRS to audit every business every year—once the IRS has you in its sights, there is very little you can do to avoid it. If the IRS is anything, it is one pest you cannot simply swat away.
There are some steps, however, you can take to minimize your chances of being selected for that special scrutiny and keep the IRS’s magnifying glass at bay.
Double Check Your Work
The way you approach filing your taxes, especially if you file on your own, makes a big difference. Be patient and take your time. Trying to rush through your returns will only increase the chance you make careless mistakes. And with each mistake you make, the sharper the IRS’s focus on you becomes.
When you think you are done, go back and review your figures to ensure your math is accurate. Then look over the simple things you take for granted, such as your basic personal information, just to be sure.
By spending the time upfront to guarantee accuracy on your return you end up saving the time—and money–you would have potentially lost during an audit.
One of the surest ways to ask for an audit from the IRS is to try to dupe them by shortcutting your returns. For your own sake, don’t. Report all of your income. No matter how briefly you were at a job or how little income you earned, income from just about any source is taxable, so make sure you track down your W-2’s and 1099’s.
It may seem as if they have their hands full as just one organization responsible for collecting taxes from an endless sea of businesses and individuals, but it is a mistake to underestimate the power and reach of the IRS. They use matching software to catch any discrepancies between the income reported under your Social Security number and the income you list on your tax return. So don’t fall into the trap of assuming any details on your return are insignificant. Adopt a policy of truth and keep your money to yourself.
Make Realistic Deductions
The more unbelievable your deductions, the more you can believe the IRS is going to question it. For a long time taxpayers stretched certain deductions to the limit, like having a home office, which is why the IRS is now extra sensitive to them. Deductions are put in place for a reason, and you should definitely take advantage of the deductions you are entitled to. Therefore, if you telecommute from home, claim so on your return with confidence. However, if you are merely freelancing atop a barstool in the breakfast nook and have the guts to still claim home office deductions, do not be surprised if the IRS has something to say to you.
Use Social Media Wisely
One thing the IRS specializes in is combing through public records to learn more about taxpayers’ whereabouts and their financial situations. Like most organizations, the IRS has recently taken to using social media to uncover taxpayer fraud.
Though they claim to only make audit decisions based on information submitted on tax returns, details revealed through business websites are fair game. Accordingly, if you have reported to the IRS that your business had a down year, it is probably best to rethink that tweet with the hashtag “#businesscouldntbebetter!”
Unfortunately, the fact of the matter is there is no one guaranteed way to keep the IRS from auditing you. If you do end up getting selected—even after following these steps—don’t worry. Maintaining good records and having your financial statements organized will support your case to the IRS’s satisfaction, keeping your money with you, where it belongs.
If you need assistance with getting your finances organized, contact us to schedule an appointment today.